A dilemma which often faces commercial and retail shop tenants in Queensland is whether or not they should register their Lease with the titles office.

It is common in practice for the Tenant to bear the costs of and incidental to the registration of the Lease. This can include the costs of having a Premises surveyed and plans prepared, lodgement fees and requisitions. This can all be a very costly process.

The question that often confronts a Tenant is: do the risks associated with not registering the Lease justify the initial costs of registration?

So what are the risks?

First we should look at the basic rule regarding registered and unregistered interests. Section 184(2)(a) of the Land Title Act 1994 (the ‘Act’) provides:

“the registered proprietor of a lot will not be affected by the actual or constructive notice of an unregistered interest affecting the lot.”

There are exceptions to this rule as we will see below but, disregarding the exceptions, the effect is that, if the Landlord should decide to sell the Premises at any time during the Lease, a buyer of the property is not be obliged to honour any unregistered Lease. It is worthwhile to note that this rule applies even if the buyer has actual notice of your Lease.

There are exceptions to this rule. One such exception, perhaps the most commonly occurring exception, is provided for in Section 185(1)(b) Act:

“A registered proprietor…does not obtain the benefit of Section 184…for the interest of a Lessee under a short Lease.”

A short lease is a lease for a term of three (3) years or less. Therefore, your interest under a short Lease will be protected (in part) even if it is not registered. The buyer of the Premises will be forced to honour your interest in the Premises as if your Lease were registered, but any options for a further period need not be honoured.

The Act expressly provides that, even if the initial term of the Lease is three years or less, any options to extend the lease and any rights to purchase the premises which are contained in the Lease will not receive the benefit of Section 185(1)(b).

If you want to ensure that your Lease options are protected then you must register your Lease regardless of the initial term of the Lease.

There are other, less commonly occurring, exceptions provided for in the Act, however, what is clear is that if you want to secure your tenancy for any period beyond three (3) years then registration of your Lease is essential.

If an option to purchase the leased property is included in the lease then registration is essential regardless of the term of the lease.

The process of registration requires strict compliance with the titles office requirements.

You should always obtain advice and assistance from your lawyer when entering into a commercial Lease.

The Land Tax Act 2010 was introduced last year. It will potentially increase the land tax that some owners have to pay even if valuations have decreased! Anyone who has more than one investment property should take care to examine the manner in which their investments are held.

The section of the Act to look out for is Section 20.

Accountants and advisors will sometimes recommend to property investors that they consider holding each investment property in a different trust. One reason for having more than one trust is so that any negative events which affect one investment property do not spill over and produce a negative impact on another property. There are also other reasons why a family may operate more than one trust, including for estate planning. Essentially each property has a distinct and different owner. Although separate trusts may be set up all family members are often listed as potential beneficiaries of each of these trusts.

Section 20 provides that if a trustee, is the trustee of more than one trust and the beneficiaries of each trust, are also the same beneficiaries then land tax is not separately assessed against each property. The value of the properties is combined.

For an investor who owns two properties each valued at $340,000.00 this means potentially paying $7060.00 land tax.

If section 20 did not apply there would be no land tax to pay, as each property valued separately at $340,000.00, falls under the threshold.

The changes that need to be made to avoid paying land tax in this situation are relatively simple and very inexpensive. The most obvious solution may be to appoint a new trustee to one or more of the trusts.

If you are a commercial tenant you probably already know that retail shop tenants have a higher level of protection than do other commercial tenants. A retail shop landlord is restrained from doing certain things.

You may be a retail shop tenant even if you do not operate a retail shop. It is essential that you are able to determine if you are entitled to the benefits of the act. A link to the Retail Shop Leases Act is set out here.

Landlords are not permitted to pass on the cost of preparing a lease to their retail shop tenant.

There are rules about the maximum proportion of outgoings that a landlord can ask a retail shop tenant to pay.

The landlord is restricted in the way that increases in rental can be imposed.

There are other benefits also. You should make sure that your lawyer is aware of all of these benefits and that your lease is checked to see that it complies with the act. If you have any doubts, please contact J J Riba & Co
It is to your benefit to know if you are a retail shop tenant. There are two ways that you may become a retail shop tenant.

1. Go to the back of the Retail Shop Lease Regulations -Your kind of retail business may be included in the list in the Regulations. Please follow the link. or
2. You may be located in a Retail Shopping Centre. We have set out below Section 8 of the Retail Shop Leases Act which shows how you determine if the premises are a Retail Shopping Centre.

If either 1 or 2 above is correct then you have the additional benefits and protections of the act.

8 Meaning of retail shopping centre
(1) A retail shopping centre is a cluster of premises having all of
the following attributes—
(a) 5 or more of the premises are used wholly or
predominantly for carrying on retail businesses;
(b) all the premises—
(i) are owned by the 1 person; or
(ii) have the 1 lessor or head lessor, or, if the premises
were leased, would have the 1 lessor or head
lessor; or
(iii) comprise lots within a single community titles
scheme;
(c) all the premises are located in—
(i) 1 building; or
(ii) 2 or more buildings if—
(A) the buildings are adjoining; or
(B) if the premises are owned by the 1
person—the buildings are separated by
common areas or other areas owned by the
owner or a road; or
(C) if the premises are not owned by the 1
person—the buildings are separated by
common areas or a road;
(d) the cluster of premises is promoted, or generally
regarded, as constituting a shopping centre, shopping
mall, shopping court or shopping arcade.

5. What are fees paid for? Is the franchisor required to provide any identifiable level and quality of service in return for the payment?

6. How are fees reviewed and are there likely to be substantial increases?

7. What other start up costs will you incur? Uniforms, equipment, fit out, occupancy costs.

Many franchisors impose a sale fee which in some cases can be tens of thousands of dollars. It is important to know at the point of entering the franchise what it will cost to escape the arrangement when, in the future, that becomes necessary.

If you are required to contribute to a marketing or other cooperative fund the franchisor must prepare a financial statement of the fund=s receipts and expenses and the amount spent on administration, production, advertising. Unless 75% of the franchisees agree otherwise, this statement must be audited within three months of the end of the financial year. The franchisor must give you a copy of the statement within 30 days of your request.

If you require help checking your Franchise Agreement before you purchase or if you have a concern contact J J Riba & Co

Personal Property Securities Register (PPSR) The Federal Government is working on a new national register which will be available later in the year (around October 2011) – originally this date was May 2011. The changes it will bring will affect businesses and individuals.
Anyone who borrows money may be asked to provide a registered interest in property (not real estate). Manufacturers will be able to register their interest in goods that have not yet been paid for. The registration will create a system of priority the same as is currently done with mortgages and interests in real estate. If interests are not registered then those interests may not be properly protected.

It will be essential for franchisors and business owners to understand how this new system will work so that they can search to see what interests have already been registered against an individual or company. It will also be necessary to know how to quickly register an interest so that it is protected in priority to interests that others may seek to register. Speed will be very important.

ACCC URGES PROSPECTIVE FRANCHISEES TO DO THEIR HOMEWORK
If you’re thinking about a new franchise opportunity in 2011, the Australian Competition
and Consumer Commission suggests prospective franchisees make the most of
opportunities to learn about the business model.
“In the New Year, many people are thinking of ways to change their lifestyle and income
and may see buying a franchise as one way of doing this,” Acting ACCC chairman
Michael Schaper said today. “As part of the due diligence process, pre-entry education
programs offer significant benefits to anyone looking to enter the sector.”
Since its launch in July 2010, more than a thousand people have enrolled in a free
online franchise education program funded by the ACCC and administered by Griffith
University.
This ‘buying a franchise’ pre-entry program provides prospective franchisees with the
tools and resources to make better informed decisions about franchise business
opportunities.
A survey by Griffith University has shown that the vast majority of participants have
found the program to be useful and would recommend the program to other potential
franchisees.
“By understanding more about buying a franchise business, including some of the
practical issues they could face as a franchisee, prospective franchisees will be more
informed before making a decision.”
The program consists of five modules. Prospective franchisees learn about franchise
specific issues, including the Franchising Code, franchise fees, royalties, operations
manuals, marketing funds and site selection, as well as general business concepts such
as cash flow, working capital and business reporting.
Dr Schaper said the program helps provide would-be franchisees with detailed, realistic
information about running their own franchise operation.
“The program can help maximise the potential for future success and minimise the
chances of conflict or failure, by better understanding the system you are entering.”
For more information about the program, visithttp://www.franchise.edu.au/pre-entry-franchise-education.html
For information about the Franchising Code of Conduct, visit the ACCC’s franchising
webpage: http://www.accc.gov.au/content/index.phtml/itemId/6118
Media inquiries
Dr Michael Schaper, acting ACCC chairman, (02) 6243 1106
Mr Brent Rebecca, media, (02) 6243 1317 or 0408 995 408
We can assist you with enrolement if necessary – please contact J J Riba & Co

1. Before you even think about it – You cannot franchise your business unless you have already achieved the following:
(a) You must have a business that is profitable. It must be profitable enough to produce a good profit to your franchisee even after you deduct franchise fees, not only those ongoing fees but, the initial fee also.
(b) Generally the business must have been in existence long enough to know that it can survive a range of economic environments.
(c) The business must be systemised and the systems must be recorded in a detailed and professionally drafted operations manual. It is better that you complete this job yourself, but you will need someone to proof the document. Let me repeat. Detail is critical.
(d) The business must be unique. The operations manual must reveal the uniqueness of the business. In a coffee franchise, for example, the operations manual does not only describe how to make a coffee. It describes how we, in this franchise system, make a coffee. If an operations manual is the text book description of how a coffee is made then the document is failing its purpose. There must be some uniqueness about the document. It may be what the waiter says, the way the cup is placed or the unique chocolate that accompanies each cup. The operations manual must focus attention on the differences from the standard processes that others may employ. The differences make the system, and they need not be mind blowing. It is often the little things that do the job.
(e) One operation is not enough! The business of franchising is about helping franchisees achieve success using your system. It is obviously essential to have the knowledge of how to run the franchised business. It should be just as obvious that you will need to develop the necessary skill to run head office. Operating a franchise system requires an entirely new skill set from the original business. This is a concept too many first time franchisors do not respect. Before franchising your business you must open at least two more operations, and run these successfully at a profit.

2. The set up of the structure. At this early stage it is essential to look at your goal and think big. There may be no second chance to change things once the franchise system is operating. There are some very simple, inexpensive things that can be done at the inception of the franchise system that can protect your assets, discourage would-be litigants from suing you and minimise tax. After operation commences the great ideas that come with experience will cost a lot more to implement.

If your franchise system requires premises should these sites be controlled by the franchisor or the franchisee? Careful thought needs to go into how this system should work. The companies that have the risk should not in most cases be the companies that hold the assets. This is a fundamental rule. We have set up many franchise structures, please contact JJ Riba & Co so that we can help you learn from the mistakes that others have made.

Even the decision in relation to who holds the leases is not a decision that can be made lightly. In this current economic environment many franchisors may find themselves wishing that they had not taken on the responsibility for the lease. If they had not, then the landlord would be chasing the franchisee for payment and may not be chasing them! Do I take the risk associated with the lease of the premises or don’t I? There is always a third option. Why not do both, take some leases and leave others to the franchisee? Which you may take the risk on, depends upon the importance of that site to your system.

3. The Franchise Agreement. Franchising is all about consistency. Consistency in process, in product or service, and consistency across a range of franchisees. The burger must be made the same way, every time, regardless of when or where.

This process of achieving uniformity starts with the franchise agreement. It is very difficult to properly operate a franchise system, if each franchisee within that system, operates using a different Franchise Agreement. Yet each franchisee is likely to request (or demand) changes to the agreement that you are offering. Even what may seem minor variations may create unnecessary work. Franchisors should not generally need to change their standard franchise agreement if it is properly drafted from the start.

Franchisees may draw negative conclusions about a franchisor who is willing to change the standard Agreement. Agreeing to amendments may show a lack of experience, and may even give the appearance of desperation. Disclosure documents operate on the premise that the agreement is the same (taking into account changes over time) across all franchisees in the system.

With these fixed terms however comes the responsibility to make sure that these standard terms are fair. The national unfair terms legislation (Trade Practices Amendment (Australian Consumer Law) Act 2009) does not apply to agreements between franchisees and franchisors. Nevertheless, the existence of this legislation shows that our law makers are focused on this issue. It is essential for franchisors and their lawyers to understand the purpose of each clause in the franchise agreement. Much of what may appear to be unfair at first glance, is necessary so that Franchisors can protect their own interests, and protect the system for the benefit of all franchisees. There is obviously a difference between a clause which may appear to be unfair but, is genuinely needed, and a clause designed to take an unfair advantage. If your system is to grow and prosper you will need to learn the difference.

It is not an easy process but with some discipline and dedication it is not beyond reach. If you need help contact J J Riba & Co